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Jumia boost investors’ confidence, show signs of profitability

If the figures coming out from the recently released Jumia Q4 2020 results are anything to go by; it sure shows that the eCommerce company is putting investors’ money to use while keeping growth momentum enroute profitability.

Annual active consumers reached 6.8 million in the fourth quarter of 2020, up 12per cent year-on-year with continued growth in both new and returning consumers. Orders reached 8.1 million, down 3per cent year-on-year on the back of a 14per cent decrease in digital services transactions on the JumiaPay app, while orders on the rest of the platform were stable.

The trend within the digital services on the JumiaPay app is concentrated in airtime recharge transactions as a result of reduced consumer incentives within this category which has historically been promotionally intensive.

To support its path to profitability, Jumia decreased promotional intensity and consumer incentives on lower consumer lifetime value business, while increasing its focus on every-day product categories to drive consumer adoption and usage.

On the other hand, the business mix rebalancing, alongside enhanced promotional discipline, was a meaningful driver of the unit economics improvement experienced throughout 2020, with adjusted EBITDA loss per order declining by 46per cent from €6.5 in Q3 2019 to €3.5 Q4 2020.

In addition, this rebalancing allowed the eCommerce company to diversify its business mix, reducing reliance on phones and electronics categories which went from contributing approximately 50per cent of GMV in Q4 2019 to approximately 40per cent in Q4 2020.

“We are making meaningful progress in the reduction of the overall rate of Cancellations, Failed Deliveries and Returns (“CFDR”) as we drive further operational efficiencies, including an increase in prepayment penetration via JumiaPay. While actual rates of CFDR may vary from one quarter to the other, we observed a significant reduction in this ratio between 2019 and 2020,” said Jeremy Hodara, co-chief executive officers of Jumia.

When Jumia announced in its third (Q3) 2020 results that it was ‘‘making significant progress on its path to profitability’’, it was certainly not a ‘feel-good’ statement to impress investors and other stakeholders.

At the close of business in September 30 last year, Jumia for the first time at group level had amongst others posted double positives in both Gross Profit After Fulfillment Expenses (GPAFE) and (Sales & Advertising), with the majority of countries breaking even at this level in Q3 2020.

Jumia consolidated the impressive Q3 run rallying even stronger as it closed the year with more wins. Key headlines in the just released Q4 and Full Year 2020 report highlighted quite a number of significant gains, thereby keeping the African e-commerce giant’s growth momentum in the run to profitability.

First, was the spike in Jumia’s enterprise value (EV) to 2,450% over the past year to roughly $5.4 billion. The bullish performance of Jumia’s stock in recent weeks was a cheering news for investors and a boost on Jumia’s investors’ confidence index.

Further, the financial year closed on a positive note as Jumia’s Gross Profit increased by 12per cent year-on-year while Gross Profit After Fulfillment Expenses reached a record €8.4 million, compared to €1.0 million in the fourth quarter of 2019.

Also, Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) loss was €28.3 million, decreasing by 47per cent year-on-year.

Jumia further showed equity strength with Q4 2020 returning Gross Merchandise Volume (GMV) – the total worth of goods sold over a period of time – worth €231.1 million, a quarter-on-quarter acceleration of 23% supported by the Black Fridays’ activation in November 2020. GMV was, however, down 21per cent year-on-year, as the effects of the business mix rebalancing initiated late 2019 continued playing out during the fourth quarter of 2020.

Sales and advertising expense was €10.2 million, a year-on-year decrease of 34per cent, while general and administrative costs, excluding share-based compensation expense, reached €21.8 million, a decrease of 36per cent year-on-year.

Jumia’s fintech platform JumiaPay also had a good take in the last quarter of 2020 as Total Payment Volume (TPV) reached €59.3 million, increasing by 30per cent year-on-year. On-platform TPV penetration increased from 15.6% of GMV in the fourth quarter of 2019 to 25.7per cent of GMV in Q4 of 2020.

Another significant metric of growth was Jumia Logistics, which more than doubled the monthly average deliveries in Q4. The strength of Jumia Logistics backbone was exemplified handling 4.8 million packages during Black Fridays, more than double the monthly average for the rest of the year. Jumia Logistics reached new milestones of delivery speed with 55per cent of packages reaching consumers in less than 24 hours, compared to 44per cent in 2019.

Other metrics of growth saw Jumia’s customer acquisition grew by 12per cent in 2020, from 6.1 million customers in 2019 to 6.8 million customers. That means the company added 700,000 customers more in 2020.

Commenting, Jeremy Hodara and Sacha Poignonnec, Co-Chief Executive Officers of Jumia, said, “We continued to make significant strides towards breakeven during the fourth quarter of 2020. Gross Profit after Fulfillment expense reached a record €8.4 million during the quarter.

In parallel, efficiencies across the full cost structure allowed us to decrease Fulfillment, Sales & Advertising and General & Administrative expenses (excluding share-based compensation) by 18%, 34% and 36% respectively, year-over-year. As a result, Adjusted EBITDA loss contracted by 47% year-over-year, reaching €28.3 million,” said Sacha Poignonnec, co-chief executive officers, Jumia.

According to Poignonnec, one certain reality of the present time is that the outbreak and spread of COVID-19 virus seem not abating, thus escalating the difficult operating environment for businesses generally, and impacting negatively on individuals, families and countries.

While acknowledging the impact of coronavirus on the e-tailer, the eCommerce company attributed sound business model adapted by Jumia as a leverage to pilot the company on the path to sustainability and profitability.

“While 2020 has been a challenging year operationally with COVID-19 related supply and logistics disruption, it has been a transformative one for our economic model, as we firmly put the business on track towards break even.

In addition, we raised approximately €203 million in a primary offering in December 2020. This strengthened our balance sheet, enhanced our unit economics and overall positioned Jumia to scale efficiently towards profitability. Beyond the near-term objective of break even, our long-term focus remains on fueling the growth of our e-commerce and payment platforms in Africa for decades to come,” the Jumia CEO stated.

With an expected global e-commerce annual growth rate of 14.7per cent through 2027, and with Jumia continuing to innovative business repositioning model, months ahead look promising for Jumia’s full growth, return of profits to investors and a choice profitable equity to invest.

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